Aterian, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; filed May 10, 2021. Unless otherwise stated, amounts are in U.S. dollars. Financial figures below are in millions.
Business context
Aterian operates a technology-enabled consumer-products platform, selling primarily through online marketplaces such as Amazon and Walmart. It reported operating twelve brands across home, kitchen, appliance, health and beauty, and essential-oil categories. The quarter included the February 2 acquisition of Healing Solutions’ e-commerce assets and brands.
Financial performance and liquidity
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Net revenue | $48.1 | $25.6 |
| Gross profit / gross margin | $26.1 / 54.1% | $10.3 / 40.2% |
| Operating loss | $(27.8) | $(13.9) |
| Net loss | $(82.6) | $(15.0) |
| Adjusted EBITDA (non-GAAP) | $(1.3) | $(6.4) |
| Cash used in operating activities | $(8.5) | $(17.1) |
Revenue grew 87.8%. Direct revenue rose 83.1% to $46.2 million; wholesale revenue was $1.8 million, including PPE sales. Growth reflected existing products, new launches, acquisitions and higher pricing. Essential oils contributed $7.4 million, while heating, cooling and air-quality revenue declined to $6.1 million from $9.9 million. Management attributed higher gross margin to pricing, manufacturer terms and acquired product mix.
GAAP net loss included substantial fair-value and financing-related charges: $30.2 million from changes in warrant-liability fair value, $20.1 million loss on initial warrant issuance, and $15.6 million change in contingent earn-out fair value. Interest expense, net, was $4.4 million. These items materially widened GAAP loss; adjusted EBITDA improved but remained negative.
At March 31, cash and cash equivalents were $35.0 million; cash and restricted cash totaled $44.7 million, including $9.8 million restricted cash. Current assets were $121.8 million and current liabilities $106.0 million. Inventory increased to $55.0 million from $31.6 million at year-end 2020. Reported debt categories included a $14.3 million credit-facility balance, $21.6 million current term loan, $10.7 million seller notes and $83.7 million noncurrent term loans. Stockholders’ equity was $38.5 million.
Material changes, outlook and risks
- Healing Solutions was acquired for $15.3 million cash and 1,387,759 shares; the preliminary purchase-price allocation included $40.0 million goodwill and a $17.2 million quarter-end earn-out liability. The acquisition added essential-oil revenue.
- After quarter-end, on April 8, Aterian entered into a $110 million senior secured note transaction with High Trail, bearing 8% interest and maturing April 2024, in exchange for $57.7 million cash and retirement/exchange of existing High Trail notes. Aterian used $14.8 million of proceeds to repay and terminate its MidCap credit facility. The new notes have restrictive covenants, including adjusted-EBITDA requirements, and warrants for up to 2,259,166 shares.
- Management said forecasts anticipated positive operating cash flow and expected continued covenant compliance. The filing gives no specific revenue, earnings or margin guidance; interim results are not necessarily indicative of full-year results.
- Management cited elevated international freight, container shortages, logistics congestion and expected last-mile shipping cost increases as near-term margin pressures. Substantially all products are sourced or manufactured in China; supply disruption, inventory shortages, demand forecasting and marketplace dependence remain material risks. The business is seasonal, with environmental appliances typically stronger in summer and small kitchen products stronger in Q4.
- Pending regulatory matters include a Department of Energy review of a dehumidifier model and EPA/ENERGY STAR matters involving certain products. Potential penalties or remediation costs were not clearly quantifiable in the filing. The company also disclosed ordinary-course legal matters and sales-tax exposure accrued at approximately $0.6 million.
- Subsequent to quarter-end, Aterian disclosed acquisitions of Squatty Potty and Photo Paper Direct, with cash, stock and potential earn-out consideration. These transactions were not included in March 31 results.
Key investor facts to verify
- Reconcile the April 8 refinancing’s final principal, cash proceeds, fees, warrant dilution and covenant terms against the executed agreements and subsequent filings.
- Assess whether operating cash flow can turn positive given the inventory build, restricted cash and continuing acquisition spending.
- Track freight and fulfillment costs, gross-margin durability, product-launch performance and dependence on Amazon and other marketplaces.
- Monitor the DOE and EPA matters, sales-tax exposure, and collection/timing of supplier settlement payments; the filing text describes settlement amounts in different contexts.
- Review the fair-value assumptions for warrants and earn-outs, which produced large noncash charges, and the potential dilution from outstanding and acquisition-related shares and warrants.